This Week in Barrons – 7-26-2015:
“I just can’t believe this !@#$!#
any longer.”
Thoughts:
Setting a Bear Trap:
According to the Onion: a Gallup Poll describes three out of four
Americans as: “No longer believing this s__t”.
It seems that 73% of poll respondents described this s__t as
"beyond belief," 9% said they could "hardly believe it",
with another 5% “just barely” believing it. "The American people have had to deal with this kind
of s__t for years," said Gallup Organization president Lee Sanderson,
"but now, for the first time, it appears that the vast majority of them
just can't believe it anymore.” They’ve
seen:
-
Banks fined over $45B for manipulating
Libor, gold, treasury auctions, mortgages, etc.
-
6 Years of a Zero Interest Rate Policy,
-
4 Quantitative Easing (QE) programs, and
-
Trillions spent on stimulus projects, just to have our
economy maintained on ‘life support’.
Sanderson went on to add: "In all
honesty, who can blame the average American? Regardless of one's political affiliation,
socio-economic status, religion or just about any other viewpoint, you've got
to admit, the s__t that's been going on lately is way out of hand." After all, Greece is in a shambles – with France,
Portugal and Spain not far behind. China
is propping up their own currency and stock market by dumping U.S. Treasuries. But ‘bottom line’, as you look around the
globe:
-
Electricity demand is down,
-
Oil consumption is down, and
-
Retail sales are down.
As if to add insult to injury, on September 13th we will see
the final cycle of the 7-year Shemitah.
A Shemitah is an old biblical process where debts are to be forgiven. Very big events have happened during past Shemitah
years such as: the Black Monday stock market crash, the market crash of 2008,
the 9/11 disaster, the legal ruling to remove prayer in schools, and the Roe
vs. Wade decision.
Combine that with in September/October (for the first time in 80 years),
4 major economic cycles will converge:
-
The Kondratieff economic cycle,
-
The Kitchin cycle,
-
The Juglar economic cycle, and
-
A couple other 20 to 60-year cycles – all of them portending
some form of economic downturn.
Currently this has the big players and the ‘smart money’ heading for the
exits. We've seen classic ‘distribution’
days where stocks would be run higher on low volume, and then pounded lower on
high volume. Last week the NASDAQ hit an
all time high, but on that very same day – more stocks FELL than went
higher. Consider this, the last time the
NASDAQ hit an all time high with more stocks FALLING than going higher – was
the year 2000 when (a week later) we entered a bear market and the index lost
over 50% of it’s value.
So the entire world is in bad shape, and along comes all of these weird
events and cycles converging on us this fall.
Hey, maybe it means nothing, and this autumn comes and goes without so
much as a whimper. But I think the market is already telling us that they
are: “No longer believing in this s__t.”
And even they are: “Mad as hell, and are NOT going to take this anymore.”
The Market:
Is it possible that the market isn't going to wait until the fall to put
in a major correction, and instead is already starting the process? I
think there is a lot of uncertainty surrounding the fall, and that the market
could decide to roll down hill from here.
The market has tried to break out over its ‘all time high’ level several
times now and failed. The market could just give up on the idea for a
while, and decide (instead) to take a rest.
I know this is dangerous talk because ‘every time’ the market has looked
like it is ready to roll over, the ‘powers that be’ have rushed in and jammed
the market higher. It's their way of extending
the illusion that all is well – just like China. Except in China, their government ADMITS to manipulating
their own market. I'm not at all
convinced that a bear market is upon us; however, I am beginning to think that
the long lost correction we haven't seen in 6 years could be right around the
corner.
Add ‘DOW Theory’ to this mix.
Simply stated: you cannot keep having new, all time highs in the DOW if
the DOW-Transport sector is not also making new highs. Well, as the DOW has been climbing higher –
the transports have been puking lower. This is never a good sign.
What about earnings? If you're only
trading that narrow slot of tech companies that everyone is drooling over –
you’re fine. But if you're part of the
wider economy – your life isn't so rosy. Amazon (AMZN) used a ton of accounting tricks to
post their first profit in 20 years, and everyone jumped on like it was an IPO
stock. But what about: Caterpillar (CAT),
IBM, and 3M? What about the hundreds of ‘normal’ companies that had their
earnings expectations lowered, and still couldn't make their revenue estimates?
And what about the FED? This week
the Fed is meeting again to discuss economic policy. We will get the results of that meeting on
Wednesday afternoon. No one is expecting
them to say anything about a rate increase; however, there have been a couple
of twists to the story. This past week,
a ‘supposedly’ confidential FED note leaked, and it suggested that the FED
would like to see two rate increases this year starting in Q3. If that is correct, this fall just got a
little more interesting. In the FED
comments I would expect to see more justifications for delaying rate hikes and
more dovish policies. But if the FED is
at all hawkish in its comments, it will put pressure on a stock market that is currently
trying to fight off the elements of a correction.
FYI, President Obama just nominated another vacant FED governor seat – with
another academic with strong Keynesian leanings. President Obama will be the first President
since the inception of the FED, who will have appointed ALL of the FED governors,
Vice-chair, and Chairperson. No one is
making a big deal of this; however, if any President had been able to appoint
every Supreme Court Justice, the media and political frenzy would reach epic
levels. I would argue that the Fed is
far more reaching and powerful than the Supreme Court – when it comes to the
future of our nation.
What are the road signs? Watch the S&P. The S&P is considerably more ‘important’
of an indicator than the DOW because it is so much larger. Here is my roadmap:
-
If the 2076 to 2979 level fails, the next stop lower
would be 2063 – the 200-day moving average.
-
If the 2063 level fails, then the last and most important
stop is 2046 – which was the closing low set on July 8.
-
If the market closes below 2046, then I think we could
see that 10% correction that has been eluding us for the past 6 years.
-
In terms of upside, if we close above 2102 then we need
to believe that the markets have shaken off the ‘prowling bear’, and we're
going back to the highs.
It's an interesting time in market-land, and I think the next six months
are going to bring us increased volatility and fireworks.
TIPS:
With the increase in volatility I’m picking up my pace of selling Iron
Condors (40 to 90 days out) on the SPX at a Delta 14 or less. The volatility index (VIX) is approaching the
14 level again – and therefore the sales premiums are picking up along with it.
I’m watching:
-
TSLA
o
Buying the AUG1 - $290 Calls for $5
o
Selling the JUL5 - $260 / $255 Put Credit Spread for
$1.33,
- - FB – Buying the JUN5 - $99 Calls for $3.90
- - Mondelez
(MDLZ) – Buying the December $40 Calls @ or under $2.80
- - Time
Warner (TWX) – Buying the January $90 calls @ or under $4.00
- - TAP
– Buying the January $90 calls @ or under $1.40
- - CCE
– Buying the January $45 Calls @ or under $2.60
- - ADI
– Buying the December $70 calls in ADI, @ or under $3.00
I’m currently holding:
-
DIS – BOUGHT the AUG $119 Calls for $2.60,
-
IWM – SOLD the August 112 / 114 to 132 / 134 Iron Condor,
-
MDLZ - BOUGHT the
SEPT $43 Calls for $1.05,
-
NDX – SOLD the SEPT $4875 / 4900 Call Credit Spread for
$2.95,
-
RUT – SOLD the August 1140 / 1150 to 1330 / 1340 Iron
Condor,
-
SPXPM – SOLD – Iron Condor – SEPT @ 1885 / 1890 to 2200 /
2205,
-
SPX:
o
SOLD – Iron Condor – Aug1 @ 2040 / 2045 to 2145 / 2050,
o
SOLD – Iron Condor – Aug2 @ 2025 / 2030 to 2170 / 2175,
o
SOLD – Iron Condor – Aug @ 1895 / 1900 to 2160 / 2165,
o
SOLD – Iron Condor – Aug @ 1940 / 1945 to 2170 / 2175,
o
SOLD – Iron Condor – Aug @ 1965 / 1970 to 2170 / 2175,
o
SOLD – Iron Condor – Aug4 @ 1895 / 1900 to 2150 / 2155,
o
SOLD – Iron Condor – Aug4 @ 1950 / 1955 to 2170 / 2175,
o
SOLD – Iron Condor – Aug4 @ 1995 / 2000 to 2180 / 2185,
o
SOLD – Iron Condor – Sept1 @ 1935 / 1940 to 2160 / 2165,
o
SOLD – Iron Condor – Sept1 @ 1955 / 1960 to 2175 / 2180,
o
SOLD – Iron Condor – Sept2 @ 1925 / 1930 to 2180 / 2185,
o
SOLD – Iron Condor – Sept @ 1845 / 1850 to 2190 / 2195,
o
SOLD – Iron Condor – Sept @ 1870 / 1875 to 2215 /
2120,
o
SOLD – Iron Condor – Sept @ 1925 / 1930 to 2215 /
2120,
o
SOLD – Iron Condor – Sept4 @ 1900 / 1905 to 2175 / 2180,
o
SOLD – Iron Condor – Sept4 @ 1900 / 1905 to 2210 / 2215,
o
SOLD – Iron Condor – Oct1 @ 1895 / 1900 to 2210 / 2215,
o
SOLD – Iron Condor – Oct1 @ 1905 / 1910 to 2210 / 2215,
o
SOLD – Iron Condor – Oct2 @ 1870 / 1875 to 2195 / 2200,
o
SOLD – Iron Condor – Oct @ 1850 / 1860 to 2200 / 2210.
To
follow me on Twitter.com and on StockTwits.com
to get my daily thoughts and trades – my handle is: taylorpamm.
Please
be safe out there!
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